ACIT, Meerut v. Sh. Gyanendra Kumar,, Meerut

ITA 4270/DEL/2009 | 2006-2007
Pronouncement Date: 22-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 427020114 RSA 2009
Assessee PAN EEBUY1000S
Bench Delhi
Appeal Number ITA 4270/DEL/2009
Duration Of Justice 1 year(s) 8 month(s) 16 day(s)
Appellant ACIT, Meerut
Respondent Sh. Gyanendra Kumar,, Meerut
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 22-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 05-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 4270(DEL)/2009 FINANCIAL YEAR: 2006-07 ASSISTANT COMMISSIONER OF S HRI GYANENDRA KUMAR INCOME-TAX CIRCLE 1 VS. DAURALA SUGAR WORKS MEERUT. DAURALA MEERUT. (APPELLANT) (RESPONDEN T) APPELLANT BY : SHRI SALIL MISHRA SR. DR RESPONDENT BY : S HRI VINOD KUMAR GOEL ADVOCATE ORDER PER K.G. BANSAL : AM THE REVENUE HAS RAISED SIX GROUNDS IN THIS APPE AL WHICH DEAL WITH ONLY TWO ISSUES I.E. WHETHER THE LD. CIT(APPEALS ) ERRED IN HOLDING THAT-(I) THE GAIN ARISING FROM TRANSFER OF THE HOUSE PR OPERTY WAS LONG-TERM CAPITAL GAIN; AND (II) THE GAIN ARISING FROM T RADING IN SHARES AND SECURITIES THROUGH PORTFOLIO MANAGEMENT SCHEME WA S SHORT-TERM CAPITAL GAIN. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED HIS RETURN ON 29.07.2006 DECLARING TOTAL INCOME OF RS. 34 96 01 0/-. THE RETURN WAS PROCESSED U/S 143(1) ON 21.9.2006 AND THEREAFTER IT WAS TAKEN UP FOR ITA NO. 4270(DEL)/2009 2 SCRUTINY BY ISSUING NOTICE U/S 143(2) ON 30.07. 2007. THE ASSESSEE HAD DECLARED INCOME UNDER THE HEAD SALARIES HOUSE P ROPERTY CAPITAL GAIN AND OTHER SOURCES. THE ISSUES WHICH ARE OF IMPORTA NCE TO US RELATE TO SALE OF A HOUSE PROPERTY AND THE INCOME EARNED BY PLACI NG FUNDS WITH SIX PORTFOLIO MANAGEMENT SCHEMES (PMSS FOR SHORT). THE FINDING OF THE AO IN RESPECT OF THE FIRST ISSUE IS THAT THE GAIN DERIVED FROM TRANSFER OF THE HOUSE PROPERTY IS SHORT-TERM CAPITAL GAIN AS AGA INST THE CLAIM OF THE ASSESSEE THAT IT IS LONG-TERM CAPITAL GAIN. IN RE SPECT OF THE SECOND ISSUE THE FINDING OF THE AO IS THAT THE INCOME EARNED FROM PLACING FUNDS WITH SIX PMSS CONSTITUTE BUSINESS PROFIT AGAINST THE CLAIM OF THE ASSESSEE THAT IT IS SHORT-TERM CAPITAL GAIN. THE LD. CIT(APPEALS) HAS REVERSED THE FINDINGS OF THE AO ON BOTH THESE ISSUES. THEREFORE THE REV ENUE IS IN APPEAL BEFORE US. 3. THE FACTS REGARDING TRANSFER OF THE RESIDEN TIAL PROPERTY ARE THAT THE ASSESSEE WAS INFORMED ABOUT ALLOTMENT OF FLAT BE ARING NO. A-103 IN THE THIRUVIZHA COOPERATIVE GROUP HOUSING SOCIETY LT D. BY THE SECRETARY OF THE SOCIETY ON THE BASIS OF DRAW OF LOTS HELD O N 30.12.2001 AND CONFIRMED BY THE DELHI DEVELOPMENT AUTHORITY (T HE DDA FOR SHORT) ON 06.02.2002. THE POSSESSION OF THE PROPERTY WAS TAKEN BY THE ASSESSEE ON 01.12.2002. THE PAYMENTS IN RESPECT OF THE PROPER TY WERE MADE ON A ITA NO. 4270(DEL)/2009 3 NUMBER OF OCCASIONS BETWEEN 25.04.1995 AND 06. 01.1998. THESE FACTS ARE EVIDENCED BY PAGE NOS. 9 TO 12OF THE PAPER BOOK. THE PREMISES WERE SOLD TO SMT. GUNJAN AGGARWAL ON 01.012.2005 BY WAY OF A DEED REGISTERED ON THIS DATE FOR A CONSIDERATION OF RS . 23.00 LAKH. PARAGRAPH NO. 2 OF THE REGISTERED SALE DEED MENTIONS THAT THE VACANT AND PEACEFUL PHYSICAL POSSESSION OF THE SAID FLAT HAS ALREADY BEEN DELIVERED BY THE VENDOR TO THE VENDEE AND THE VENDEE HAS TAKEN OVE R THE POSSESSION AND HAS OCCUPIED THE SAME. HOWEVER ACCORDING TO THE ASSESSEE THE POSSESSION OF THE FLAT WAS HANDED OVER TO SMT. GANJAN AGGARWAL ON 06.12.2005 FOR WHICH A COPY OF THE POSSESSION LETTER HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NO. 7. THE CASE OF THE LD . DR BEFORE US IS THAT THE ASSESSEE HAD TAKEN POSSESSION OF THE FLAT ON 01.1 2.2002 AND HANDED OVER THE POSSESSION TO SMT. GUNJAN AGGARWAL ON 01.12. 2005. THEREFORE THE ASSESSEE HELD THE ASSET FOR NOT MORE THAN 36 MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER. ACCORDINGL Y THE ASSET IS A SHORT-TERM CAPITAL ASSET IN TERMS OF SECTION 2(42A) OF THE ACT. HOWEVER THE CASE OF THE LD. COUNSEL IS THAT THE POSSESSION OF THE FLA T WAS TAKEN BY THE ASSESSEE ON 01.12.2002. THE AFORESAID PERIOD OF 36 MON THS EXPIRED ON 30.11.2005. THE ASSESSEE TRANSFERRED THE FLAT B Y WAY OF A REGISTERED DEED EXECUTED ON 01.12.2005. THE POSSESSION WAS GIV EN TO MRS. GUNJAN ITA NO. 4270(DEL)/2009 4 AGGARWAL ON 06.12.2005. THEREFORE THE PROPERTY WAS HELD FOR A PERIOD OF 36 MONTHS OR MORE. ACCORDINGLY IT IS A LONG- TERM CAPITAL GAIN. 3.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. WE FIND THAT THE REGISTERED SALE DEED CONTAINS AN AVERMENT IN PARAGRAPH NO. 2 TO THE EFFECT THAT THE VACAN T AND PEACEFUL POSSESSION OF THE FLAT HAS ALREADY BEEN HANDED OVER TO THE VENDEE. THIS IS A REGISTERED DEED DULY WITNESSED WHICH HAS TO BE TAKEN TO BE CORRECT IN ALL RESPECTS UNLESS OTHERWISE PROVED. THE EVIDENCE PRODUCED BY THE ASSESSEE REGARDING HANDING OVER OF THE POSSESSION ON 06. 12.2005 IS THE POSSESSION LETTER SIGNED BY SMT. GUNJAN AGGARWAL AND WITNES SED BY TWO PERSONS. IT IS WRITTEN ON A PLAIN PIECE OF PAPER. ITS EVID ENTIARY VALUE VIS--VIS THE EVIDENTIARY VALUE OF THE REGISTERED DEED IS OF LITTLE IMPORTANCE. ACCORDINGLY THE FINDING OF THE AO THAT THE POSSES SION WAS GIVEN ON 01.12.2005 IS UPHELD. THUS THE FACTS ARE THA T THE POSSESSION OF THE FLAT WAS TAKEN ON 01.12.2002 FROM THE SOCIETY AND IT WAS HANDED OVER TO SMT. GUNJAN AGGARWAL ON 01.12.2005. THE PERIOD OF 36 MONTHS FROM THE DATE OF TAKING POSSESSION ON 01.12.2002 EXPIRES ON 30.11.2005. THEREFORE THE ASSESSEE HELD THE PROPERTY FOR MORE THAN 36 MONTHS FROM THE DATE OF TAKING ITS POSSESSION. ACCORDINGLY IT IS HEL D THAT THE ASSET IS A LONG- ITA NO. 4270(DEL)/2009 5 TERM CAPITAL ASSET THE GAIN FROM WHICH IS LIA BLE TO BE TAXED AS LONG-TERM CAPITAL GAIN. IN VIEW OF THIS FINDING GROUND NO S. 1 AND 2 OF THE APPEAL ARE DISMISSED. 4. THE DETAILS REGARDING EARNING OF INCOME THROUG H PMSS ARE MENTIONED ON PAGE NO. 3 OF THE ASSESSMENT ORDER IN A TABULAR FORM WHICH IS REPRODUCED BELOW:- S.NO. NAME OF PMS AMOUNT OF STT CLAIMED LONG-TERM CAPITAL GAIN CLAIMED SHORT-TERM CAPITAL GAIN 1. ICICI ASSETS MANAGEMENT 6 321 -- 37 733 2. ASK RAYMOND JAMES 7 382/- -- 3 46 533/- 3. SUREFIN INVESTMENT -- 1 26 476/- 94 733/- 4. IL&FS INVESTMENT LTD. 11 237/- -- 7 30 799/- 5. KOTAK SECURITIES -- -- 3 16 971/- 6. RELIGARE SECURITIES LTD. 1 62 929/- -- (-)1 81 672/- TOTAL: 1 26 476/- 13 45 097/- 4.1 THE FINDINGS OF THE AO ARE THAT THE ASSESSEE HAD BEEN TRADING IN SHARES AND SECURITIES THROUGH THE HELP OF VARIO US PORTFOLIO MANAGERS. THE INTENTION WAS NOT TO HOLD THEM AS INVESTMENT FOR EARNING DIVIDEND BUT TO EARN PROFIT FROM PURCHASE AND SALE TRANSA CTIONS. THE VOLUME OF THE TRANSACTIONS THE PERIOD OF HOLDING AND THE A MOUNT OF INCOME EARNED ITA NO. 4270(DEL)/2009 6 CLEARLY LEAD TO A CONCLUSION THAT THE SHARES A ND SECURITIES WERE HELD AS STOCK-IN-TRADE AND NOT INVESTMENT. THEREFORE TH E PROFIT WAS BROUGHT TO TAX AS BUSINESS INCOME. THE FINDINGS OF THE LD . CIT(APPEALS) ARE THAT THE ASSESSEE IS A SENIOR CITIZEN AGED ABOUT 67 YEARS. HE HAS BEEN IN EMPLOYMENT FOR A PERIOD OF ABOUT 40 YEARS AND IN THIS YEAR ALSO HE HAS EARNED SALARY INCOME FROM DCM SHRIRAM INDUSTRIES LTD. HE DOES NOT HAVE ANY COMMERCIAL ESTABLISHMENT AND IT CANNOT B E SAID THAT HE WAS CARRYING ON AN ORGANIZED AND SYSTEMATIC ACTIVI TY OF PURCHASE AND SALE WITH A VIEW TO EARN COMMERCIAL PROFIT. THEREFOR E IT HAS BEEN HELD THAT THE PROFIT IS TAXABLE AS CAPITAL GAINS. 4.2 BEFORE US THE CASE OF THE LD. DR IS THAT TH E ASSESSEE HAS PLACED HIS MONEY WITH SIX PORTFOLIO MANAGERS WITH A VIEW T O CARRY OUT BUSINESS ON HIS BEHALF AND TO EARN MAXIMUM INCOME THROU GH PURCHASE AND SALE OF SHARES AND SECURITIES. IT IS NOT NECESSARY FOR THE ASSESSEE TO CARRY ON BUSINESS HIMSELF AS THE SAME CAN BE CARRIED ON BY SOME BODY ELSE ON BEHALF OF THE ASSESSEE BEING PORTFOLIO MANAGERS IN THIS CASE. THE LARGE NUMBER OF TRANSACTIONS HAVE BEEN UNDERTAKEN AN D THE PERIOD OF HOLDING OF SHARES IS INVARIABLY LESS THAN ONE YEAR AN D IN SOME CASES AS SHORT AS FOUR DAYS. THESE FACTS SHOW THAT THE SURPLUS REALIZED IS ON REVENUE ITA NO. 4270(DEL)/2009 7 ACCOUNT. AS AGAINST THE AFORESAID THE LD. COUN SEL REITERATED THE FINDING FURNISHED BY THE LD. CIT(APPEALS). IT IS ALSO HIS CASE THAT SINCE THE ASSESSEE HAS PLACED MONEY WITH SIX PMSS THE GA IN REALIZED CAN ONLY BE TERMED AS CAPITAL GAIN. IN THIS CONNECTION RELIANCE HAS BEEN PLACED ON THE DECISION OF D BENCH OF MUMBAI TRIBUNAL IN T HE CASE OF ITO VS. RADHA BIRJU PATEL IN ITA NO. 5382(MUM.)/2009 FO R ASSESSMENT YEAR 2006-07 DATED 30.11.2010. THE FINDINGS OF THE TR IBUNAL RECORDED IN PARAGRAPH NO. 5 ARE REPRODUCED BELOW:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE RECORD OF THE CASE. WE HAVE NOTED THAT SO FAR AS T HE PRESENT TRANSACTIONS ARE CONCERNED THESE TRANSACTIONS A RE UNDISPUTEDLY CARRIED OUT BY THE ASSESSEES PORTF OLIO MANAGER AND THEREFORE THESE ITEMS ARE CLEARLY IN THE NATURE OF TRANSACTIONS MEANT FOR MAXIMIZATION OF WEALTH RAT HER ENCASHING THE PROFITS ON APPRECIATION IN VALUE OF SHARES. THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS SUC H THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE PROTECTED A ND ENHANCED AND IN SUCH A CIRCUMSTANCE IT CANNOT BE SAID TH AT PORTFOLIO MANAGEMENT IS SCHEME OF TRADING IN SHARES AND ST OCK. WHETHER THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEALING IN SHARES OR INVESTMENT IN SHARES IS ESSENTIALLY A Q UESTION OF FACT AND IT HAS TO BE DETERMINED WITH REGARD TO THE ENTIRETY OF THE CIRCUMSTANCES. IN OUR CONSIDERATION VIEW IN CI RCUMSTANCE IN WHICH THE ASSESSEE IS ENGAGED IN A SYSTEMATIC A CTIVITIES OF HOLDING PORTFOLIO THROUGH A PMS MANAGER IT CAN NOT BY ANY STRETCH OF IMAGINATION BE SAID THAT THE MAIN OBJEC T OF HOLDING THE PORTFOLIO IS TO MAKE PROFIT BY SALE OF SHARES DURING THE COURSE OF MAINTAINING THE PORTFOLIO INVESTMENT OV ER THE PERIOD. AS REGARDS THE HIGH NUMBER OF TRANSACT IONS WHICH HAVE BEEN REFERRED TO BY THE ASSESSING OFFICER WE HAVE ITA NO. 4270(DEL)/2009 8 NOTED ON A PERUSAL OF STATEMENT FILED BEFORE US THAT THE NUMBER OF TRANSACTION REFLECTED IN THE STATEMENT DO NOT CONSTITUTE INDEPENDENT TRANSACTION INASMUCH AS WHEN IN THE COMPUTER BASED TRADING SYSTEM LET US SAY THE ASSESSEE BUY 1000 SHARES AND THIS PURCHASE IS SPLIT OVER 10 TR ANSACTIONS FROM DIFFERENT PERSONS WHILE OVER ALL TRANSACTIO NS IS OF ONLY ONE PURCHASE OF 100 SHARES THE STATEMENT REFLECT OF THE INDIVIDUAL COMPONENT OF THE TRANSACTION AND WIL L THUS SHOW A MISLEADING HIGH FIGURE. KEEPING IT IN MIND A LL THESE FACTORS AS ALSO THE ENTIRETY OF THE CASE WE A RE IN CONSIDERED AGREEMENT WITH THE CONCLUSIONS ARRIVED BY THE C IT(A) WHICH NEEDS NO INTERFERENCE. GRIEVANCES RAISED BY THE ASSESSING OFFICER ARE THUS REJECTED. 4.3 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D SUBMISSIONS MADE BEFORE US. THE FACTS OF THE CASE ARE THAT THE ASSESSEE PLACED MONEY WITH SIX PMSS AND EARNED TOTAL INCOME OF RS. 14 71 573/-. A SUM OF RS. 1 26 476/- WAS CLASSIFIED AS LONG-TERM CAPITAL GAI N AND ANOTHER SUM OF RS. 13 45 097/- WAS CLASSIFIED AS SHORT-TERM CAPITAL G AIN. THE DETAILS OF ALL THE TRANSACTIONS UNDERTAKEN BY THESE SIX PORTFOLIO M ANAGERS ON BEHALF OF THE ASSESSEE HAVE NOT BEEN PLACED BEFORE US. HOWEVER THE DETAILS OF THE TRANSACTIONS UNDERTAKEN BY IL&FS INVESTSMART FO R THE PERIOD 01.04.2005 TO 31.03.2006 WERE PLACED BEFORE US. THESE TRANS ACTIONS RUN INTO FOUR SHEETS LEADING TO GAIN OF RS. 8 58 882/- AND LOSS OF RS. 1 22 993/-. IT IS SEEN THAT VARIOUS TRANSACTIONS UNDERTAKEN BY PO RTFOLIO MANAGERS ON BEHALF OF THE ASSESSEE HAVE NOT BEEN EXAMINED IN DETAI L SO AS TO ASCERTAIN THE INTENTION WHETHER IT WAS TO EARN DIVIDEND ETC. INCOME OR DEAL IN SHARES ITA NO. 4270(DEL)/2009 9 AND SECURITIES FOR EARNING BUSINESS PROFIT. TH E DETAILS OF THE SCHEMES AND ANY INSTRUCTION ISSUED BY THE ASSESSEE TO T HE RESPECTIVE PORTFOLIO MANAGERS HAVE ALSO NOT BEEN EXAMINED. THE INTEN TION OF THE ASSESSEE CAN ONLY BE ASCERTAINED BY GOING THROUGH THE INSTRUCT IONS AND THE SCHEMES AND EXAMINING VARIOUS TRANSACTIONS UNDERTAKEN BY THE PORTFOLIO MANAGERS ON BEHALF OF THE ASSESSEE. HOWEVER WE ARE CON STRAINED TO STATE THAT THE MERE FACT THAT THE TRANSACTIONS WERE UNDERTAKEN THROUGH PMSS DOES NOT LEAD TO THE CONCLUSION THAT THE TRANSACTIONS ARE ON CAPITAL ACCOUNT. IN THIS CONTEXT WE MAY EXAMINE THE DECISION OF THE TRI BUNAL IN THE CASE OF RADHA BIRJU PATEL (SUPRA). THE ASSESSEE HAD PL ACED FUNDS WITH ASK RAYMOND JAMES FOR MANAGEMENT. THE SHARES WERE SHOWN IN THE BALANCE- SHEET UNDER THE HEAD INVESTMENT. IT WAS HE LD THAT THE VERY NATURE OF PORTFOLIO MANAGEMENT SCHEME IS THAT THE INVESTMENT S MADE BY THE ASSESSEE ARE PROTECTED AND ENHANCED. IT WAS FU RTHER HELD THAT LOOKING TO THE CIRCUMSTANCES OF THE CASE IT CANNOT BY ANY STRETCH OF IMAGINATION BE SAID THAT THE MAIN OBJECT WAS TO MAKE PROFIT BY PURCHASE AND SALE OF SHARES. THE FACTS OF THIS CASE ARE DISTINGU ISHABLE IN AS MUCH AS THE ASSESSEE HAS PLACED FUNDS WITH SIX PMSS. HE H AS EARNED SUBSTANTIAL GAINS BUT LITTLE DIVIDEND. THEREFORE THE WHOL E ISSUE REQUIRES FURTHER EXAMINATION IN RESPECT OF TRANSACTIONS UNDERT AKEN BY PORTFOLIO MANAGERS ITA NO. 4270(DEL)/2009 10 UNDER EACH SCHEME FOR DISCERNING THE INTENTION OF THE ASSESSEE. ACCORDINGLY THE MATTER IS RESTORED TO THE FILE O F THE AO FOR SUCH EXAMINATION AND FRESH DECISION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS THE GROUND IS TREATED AS ALLOWED. 5. IN THE RESULT THE APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 JULY 2011. SD/- SD/- (C.L. SETHI)) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 22.07.2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- SHRI GYANENDRA KUMAR DAURALA MEERUT. ACIT CIRCLE 1 MEERUT. CIT CIT(APPEALS) THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.